mwyatt

Hey Andy, not trying to go that way either. I'm just not sure that I'd be going down that road with the interpretation w/o some sort of credible ERISA attorney backing, especially since the original premise was that this is an underfunded plan. Still not sure in my mind if there's any solution here, given that the PPA benefit restriction changes (which apply to all) are going to be in effect on 1/1/2008 for this plan. Of course we have bountiful guidance on all of the PPA issues (and I'm not slagging on the IRS or Treasury either, they've got an impossible situation on their hands). BTW, anyone heard anything on when they're going to release the 2008 mortality tables?

But how are you going to get a DL by 12/31/2007?

Andy, I saw documents "approved" during the TRA restatement process (the last time that most small plans had to actually file) that could have contained random pages from the telephone book in the middle. That doesn't mean I'd hang my hat on the DL. The early termination restrictions are pretty clear IMHO. If you are or were an HCE in that hall of fame class of the "top 25", then you're subject to the restrictions.

Don't want to split hairs, but the CCH blurb seems to be defining a Highly Compensated Former Employee, while the ET restrictions in the regs reference HCE or former HCE, which I think are two different animals. In any event, the early termination restrictions are there to prevent a trust fund being drained by the top paid through the payment of lump sums, leaving little else for the rest, so I'd proceed with caution. If the participant was one of the 25 top paid HCEs or former HCEs (and remember, this bears looking into if the client has been around awhile and is of significant size to see if she falls out of the picture), then the early restriction rules would still apply. Don't think they would have left that type of gaping hole in the semantics, but I'm just an actuary, not a lawyer. When in doubt, have counsel make the call.

Ask him how the scheme will work in 2008 with the new funding rules. Just because it comes out of a computer doesn't make it so (and we wonder why the IRS gets on its high horse every once in a while with stuff like this being pushed out on the market place). Better yet, ask what happens in 5 years when these people decide to terminate and expect to actually get all of this money they put in back out, given the 415 limits on lump sums. OT, can't resist this from ESPN's TMQ: Hope for the actuarial profession

From the early termination restriction regs @ 1.401(a)(4)-5(b)(3)(ii): Restricted employee defined. For purposes of this paragraph (b), the term restricted employee generally means any HCE or former HCE. However, an HCE or former HCE need not be treated as a restricted employee in the current year if the HCE or former HCE is not one of the 25 (or a larger number chosen by the employer) nonexcludable employees and former employees of the employer with the largest amount of compensation in the current or any prior year. Plan provisions defining or altering this group can be amended at any time without violating section 411(d)(6). Now sidestepping the PPA issues that modify benefit restrictions depending on funding level, looks like if she was in that top 25 group, looks like she's subject to restrictions.

For those of you out there trying to figure out how to access older DOS programs: Microsoft Virtual PC 2007 I had to figure out how to get an older pension valuation system up and running to access an old database. The system would not run on XP, forget about Vista. Here is your solution (you will need to rummage around for an old Windows 98 disk). This worked perfectly, and the program is FREE.

W/ the lump sum at NRA being valued at whatever you're assuming the appropriate assumptions at that point to be; this also begs the question of the "penalty" of double use of 1st and 2nd segment rates a nonstarter. I know that this point was raised at the EA meeting last spring (that if you are assuming that lump sums would be paid, assuming 417 payment, that you would get a PV at NRD making some sort of assumption of what 1st, 2nd, and 3rd segments would be at NRD, then discounting back at the regular segment rates, was some sort of penalty). However, given the yield curve methodology, you're trying to anticipate what payments would be at some future time; 30 years from now, the lump sum under 417 would again be reflecting a future yield curve. And again, this whole exercise does bring up the angels dancing on the head of a pin/false precision argument, but so it goes. Not sure if I'm explaining this thought correctly, but intuitively the whole yield curve is trying to match varying maturity corporate bond yields to the present time. So that if you have someone age 45 right now, it is incorrect to assume that at age 65 say, short term bonds would equal the 3rd segment right now; rather, one would expect some sort of yield curve would also be play at the future payment date. Given that, I would argue that an appropriate future lump sum guesstimate would reflect the future yield curve 30 years down the road. The yield curve isn't saying that short term rates 30 years from now would reflect the current 30 year yield; if you're trying to posit that point, you're going to have to think what short term rates would be like in the future, which is an entirely different point. This also, for those of us in the small plan market, begs the question of the "1 woman" maxed out plan. Sure wouldn't want to be funding on female rates at retirement, knowing full well that the lump sum will have to reflect unisex.

From the Conference Committee report: The annual funding notice must be provided within 120 days after the end of the plan year to which it relates. In the case of a plan covering not more than 100 employees for the preceding year, the annual funding notice must be provided upon filing of the annual report with respect to the plan (i.e., within seven months after the end of the plan year unless the due date for the annual report is extended).

If the plan sponsor is publicy traded, then they will have a CUSIP number (they should know what you're talking about).

But its been over a year now; how hard is it to add another source? Would make me question that particular vendors' accumen.

No COLA projection on LS indicated (as they were tying it to a $15k benefit). Wasn't reflecting accumulation of 401k w/ cb either. Further, the proof of pudding "testing" in their proposal consisted of some red font "PASSED", even though they had a cb rate of 37% for the 40 year old, while a 6% for the youngest NHCE, who was only 14 years younger. W/o getting into gritty details, applying 8.5% for 14 years to the 6% cb put that to 18.8%. Would have liked a little more detail on how this plan could have passed the general test, but I guess I'm just not clued into these "3rd generation" plans. Experience has been in the past w/ these outfits is they have no conception that their alternative "superior" scheme falls under the same LS guidelines as trad db plans. Usually when I talk to the person who has presented such a proposal I get a very long pause on the other end of the phone line (and that's the last that I hear of these schemes). Actually had a thought here for a new scheme. The "sleepeasy" DB plan. You agree to contribute cash, which will be placed into a secured mattress; we then, given the solemn promise that none of this cash will flow out to any investment that will generate a positive return, will allow us to assume a 0% return from now until NRD. Imagine the potential here (and we're not funding an agent's retirement plan at the same time).

Just had another proposal come across my desk, which was generated very recently. This one used a CB 401k combo. Somehow for a 40-year old principal w/ a 62 NRA, showed a lump sum of $3.2m at age 62 (and CB credits twice as high as called for for 22 year funding under IA). Just because you call it cash balance means you get to blow off 415?. Also had $2m of insurance. When lurked further on the purveyor's website, saw the plan "to avoid market uncertainty" was to invest everything in GICs. Guess Jimmy Holland will just have to holler a little louder at the next meeting. Some of these guys haven't heard the news...

Curious what providor wouldn't allow for Roth deferrals. Not exactly rocket science, just entails adding an additional source, which isn't that big of a deal.

Agree w/ Andy, haven't ever heard of setting up a 412i scheme to cover only 2 NHCEs. Usually the drill is the crotchedly old owner, plus NHCEs in the 412i, with the associate attornies thrown to the wolves. Sure you have the scenario correct?

If they like having double the administrative costs, sure!

Hey Andy: Actually had a meeting in Boston (fortunately down by UMA Boston) so I didn't have to dodge the hordes of drunk high school kids. Biggest problem getting home were the stupid Taco Bells on 3A. What possesses people to wait in line for an hour to get a free 99 cent taco? Can't even imagine what it was like at the TB in Kenmore Square this afternoon.

Not sure if anyone has heard about this bill recently proposed, but it seems to make sense to me. A postponement of the funding rules effective date from 2008 to 2009 sure seems in order given the state of guidance available. Plan Advisor on HR 3868 I wrote my congressman; might not be a bad thing to do by other members of the board (what's that old saying about you can't complain if you don't speak up).

Don't have to go too much further than 404(a)(8): (8) Pension Self-employed individuals. In the case of a plan included in paragraph (1) , (2) , or (3) which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401©(1) , for purposes of this section — 404(a)(8)(A) the term "employee" includes an individual who is an employee within the meaning of section 401©(1) , and the employer of such individual is the person treated as his employer under section 401©(4) ; 404(a)(8)(B) the term "earned income" has the meaning assigned to it by section 401©(2) ; 404(a)(8)© the contributions to such plan on behalf of an individual who is an employee within the meaning of section 401©(1) shall be considered to satisfy the conditions of section 162 or 212 to the extent that such contributions do not exceed the earned income of such individual (determined without regard to the deductions allowed by this section ) derived from the trade or business with respect to which such plan is established, and to the extent that such contributions are not allocable (determined in accordance with regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance; Further, suggest you check out IRS Pub. 536. Problem is that NOL comes from the Schedule C deductions; the pension deduction (other than pension attributable to employees) is deducted on the 1040, not the Schedule C. Not an accountant (or even pretend to be one, being an actuary is dull enough ), but looks like since the pension contribution is outside of the Schedule C can't carry it as a NOL, but what do I know.

Trying to get a handle exactly what you're trying to accomplish here. $0 earned income means he may put the $100,000 into the DB plan, but it isn't deductible (no loss carryforward for a sole prop). If this continues into the future w/ no earned income, the contributions never get deducted, meaning that he is effectively converting post-tax money into pre-tax money. Now takes out $200,000 in pre-tax money to put in his Roth, wherein he's taxed on that distribution (can't roll into a Roth IRA, have to settle taxes first). So in essence, unless there's something I'm not getting, your client is proposing to convert after-tax money into pre-tax money, then pay taxes on it again, and then finally end up in a Roth plan. What am I missing from your question?

Is Jimmy Holland posting anonymous bs questions here? So on the 1040, you posit no income but a 100k keogh deduction. Trying to figure out exactly how I can replicate Eddie Murphy's donkey voice in Shrek as a response.

Us here in MA are looking at a pension plan set up for the keys at the MTA (Mass Transit Authority) wherein one guy just retired in his mid-40s w/ a $140k annual pension (never mind the inherent 415 violation). Plan provides for full retirement after 23 years. Next time you're in Boston, you'll know why the transit system is in trouble. Oh, but that's a government plan, so never mind. Just our tax dollars at work.

Think you're confusing funding w/ accrual. You could put in the 150%, but that doesn't mean that if he walked after year 1 that he would be entitled to extra lump sum.

Well, that ease up on Schedule R will surely be a timesaver...

Actually, since PPA put the 415 high 3 Year limit back to service, not participation, once you get those 3 consecutive years over the dollar limit that issue becomes irrelevant.